With some recent privatization reversals, a number of business leaders and free market fundamentalists are concerned that the BC Liberals are backing away from the Campbell revolution. The government, in their opinion, needs to get back with the program -- more tax cuts, deeper and faster spending cuts, privatize Crown corporations, and get rid of environmental and labour regulations.
If the government appears to be doing an about-face, or is at least slowing down, it is only because its own ideological leanings have run square into public opinion, and there is an election coming in 2005. But backing off a handful of egregious proposals does not make up for two-and-a-half years of shredding BC's social contract. The government's policies have widened the divide between the rich and the poor, and the Lower Mainland and the "Heartland."
A regional backlash explains some recent reversals. The Liberals may want to privatize the Coquihalla Highway and liquor stores, but these are highly unpopular among Heartlanders. The government has backed off these two privatization proposals that were seen as callous at a time when rural BC is hurting -- from both the short-term softwood lumber dispute and a long-term decline in the resource sector.
The government has already made this situation worse. Despite the Heartlands rhetoric, areas outside the Lower Mainland and Victoria have borne a greater share of the spending cuts, while receiving a smaller tax cut on average. The privatization of BC Rail will add to the pain in the Interior. Equally significant, the government's proposed changes to forests legislation would de-link timber cutting rights from local processing and job obligations -- a move that would terminate the social contract at the heart of BC's rural development.
The Campbell revolution also scuttled the social contract in terms of who pays and how much for public services. The BC tax cuts are a case study for how to bring in unpopular upper-income tax cuts by stealth. First, promise low- and middle-income tax cuts, and insist they will pay for themselves. Then slip in upper-income tax cuts with the package, and when revenues fall, raise regressive taxes -- on sales, MSP, gas and tobacco -- that fall disproportionately on low- and middle-income households.
In spite of these increases, even by 2005/06, tax revenues are not expected to recover their 2001/02 levels. This means spending must be cut to re-balance the budget. Since 70% of the budget goes to health care and education -- which have the most broad-based support -- spending cuts have been concentrated everywhere else. By 2004/05, these Ministries will be cut on average by one-third of their 2001/02 levels.
This is bad news for BC's poorest. Eligibility for welfare has been restricted, making it harder to get assistance when in need, while already-lean benefits have been reduced. Moreover, a two-year time limit means thousands of people will be pushed off welfare and onto the street starting April 1. These are revolutionary changes that amount to a direct transfer of income from the poorest to the richest in the province.
The government's policy of putting profits first has also been bad news for the environment: environmental assessments are out the window in favour of industry-driven approaches, environmental regulation and oversight have been hobbled, and the relentless pursuit of fish farms and offshore oil pose serious ecological risks without even offering hope of meaningful job creation.
So far, these cuts have been masked in the budget as a whole due to increased federal transfers that have gone to the provincial health care system. Commentators on the right may point to a spending increase of $485 million in 2002/03, but spending cuts really hit home this year and next. By 2004/05, the total provincial budget will shrink by $1 billion compared to 2002/03 levels.
Even health care and education, while uncut in strict Budget terms, are being suffocated, with no further budget increases planned -- unless more federal money shows up. The reality of rising costs of providing these services is already leading to an erosion of health care and education, in terms of longer waiting lists, school closures, and larger class sizes.
Many significant policy changes do not necessarily show up in the budget's bottom line, either. Lower minimum wages and higher tuition for students hurt low-income groups. Rollbacks of labour and employment standards undermine the rights of workers. Municipalities are being prevented from stopping fish farm development in their vicinity. These radical policy changes have real impacts that can be glossed over if one only looks at budget dollars.
No doubt many in corporate BC are disappointed that there have not been even larger tax cuts and reductions in spending. Some have even concocted bogus arguments that deeper tax and spending cuts will magically lead to higher rates of economic growth -- a proposition that flies in the face of the best scholarly evidence.
The government has already shrunk the public sector beyond reasonable levels. The lesson of the recent Ontario election is that people are disillusioned with tax cuts and want to rebuild public services. The BC government needs to do more than put the revolution on pause until after the next election -- it needs to fundamentally change course.
Marc Lee is an Economist with the BC office of the Canadian Centre for Policy Alternatives.